Laws of Financial Gravity

June 6, 2020 8:03 AM

Issac Newton, Daniel Defoe and the Dynamics of Financial Bubbles. "A famous anecdote tells of Sir Isaac Newton realizing large gains in the early stages of the South Sea Bubble, but then losing all that and more by buying back in at the top. On the other hand, the fact that the author of Robinson Crusoe was also associated with that episode of extreme investor exuberance is little known. And that is a pity, since Daniel Defoe’s words, as well as Newton’s actions, are very illuminating about an important aspect of bubbles that deserves much more attention. This is the social network element..."
posted by storybored (6 comments total)

I do like the idea of a gullibility index somehow flagging bubbles while they’re happening. Do people get gullible all over once they’ve convinced themselves to make an ill supported investment? Could a standard three-cups-and-a-pea game, carefully monitored, tell us all when to batten down? But even if we all believed that the Gullibility Index was accurate, would we be capable of guessing which part of our own behavior needed to be modified?
posted by clew at 8:24 PM on June 6, 2020 [1 favorite]

Compagnie du Mississippi; and the"Mississippi bubble".


the Gullibility Index was accurate, would we be capable of guessing which part of our own behavior needed to be modified?

perhaps related, my neighbor poured ouy a paper grocery sack full of scratch off lottery and exclaimed, "do I have a problem?!"
ummm..."but I won 50$ today so I'm 40$ ahead."

great question.
posted by clavdivs at 9:31 PM on June 6, 2020 [1 favorite]

I was going to put up the story of Newton's cat-flap to illustrate how brilliance can be strangely compartmentalised. But there is no contemporary evidence that Newton had any companion animals. The first mention of The Great Man cutting a smaller door for the kittens of his pet cat was in an anonymous essay about humility and common sense for pastors published 160 years after his death. A Douglas Adams snippet about Newton's catflaps has gotten a lot more googleage, including on MeFi. Somehow along the way this non-existent cat has been named Spithead. It's not too late to name the kittens: Swallow, Leopard, Captain and Lenox after HM ships that might have sheltered at Spithead while Newton was plunging his fortune into the South Seas.
posted by BobTheScientist at 10:58 PM on June 6, 2020 [1 favorite]

Apropos Governor John Law selling shares in the French Reserve Bank 1720.
I wonder what shares in the USA Federal Reserve would be worth today with it's unbalance sheet of 5 trillion dollars of Tarp Money and Quantative easing.
posted by Narrative_Historian at 1:47 AM on June 7, 2020

Sounds like something out of a Neal Stephenson novel.
posted by Snowishberlin at 1:15 PM on June 7, 2020 [2 favorites]

Stephenson definitely mined Exttraordinary Delusions and probably Braudel’s Civilization and Capitalism for his historical novels, yeah.
posted by clew at 10:02 PM on June 7, 2020